RSSBefore you can actually begin your new business, you may need to find funding. New business funding typically comes in one of two ways. You can choose equity funding or debt funding and there is a big difference between the two.
Equity funding is when you receive money for your new business by offering a bit of ownership in that business. For instance, if you sell stock in your new company then you are relying on equity funding. If you have a partner or a silent partner, this is equity funding as well. Anytime you give up part of the ownership in your business in order to gain capital for its startup, it is considered equity funding.
There are many sources for equity funding. Friends and family, personal savings and private investors can all help you to attain the cash that you need for your business startup. Using your own personal savings for startup funding allows you to retain complete control over your company. Choosing partners or other forms of equity funding add others to the mix. Most new business owners prefer to keep control over their new businesses by using their own money in order to begin that business.
Debt funding is the most popular and most well known type of funding. If you are beginning a new business in Africa, or anywhere else in the world, you likely already have considered going to the bank for a business loan. This is considered debt funding and this type of funding begins millions of businesses in the world. Using your credit card for business startup or purchases is also considered debt funding. Debt funding is gaining the money that you need for your new business by borrowing. You will have the money that you need for startup costs, but will have to pay that money back over time. Unlike equity funding however, you can retain complete ownership of your new business by choosing this method.
The most popular type of debt funding is a bank loan. Many may choose this option and the help of certain organizations such as the Small Business Administration in the United States, helps potential business owners to get the capital that they need to begin their business.
You may also want to consider borrowing your needed capital from friends and/or family members. Friends and family are often willing to loan money for a business that they believe will be a good investment. Alternatively, you can ask friends and family members to co-sign on a note from the bank if you need a co-signer in order to get a loan. Keep in mind however, that co-signers are held responsible for bank loans if the original borrower does not pay it back.
There is also a way to get the financing that you need for certain business equipment. Vendor financing is similar to a lease. You get the business equipment that you need on credit and pay back that amount, along with fees and other charges much like interest on a bank loan.